Monday, 6 January 2014

Additional evidence that median income in the U.S. has not stagnated since the late 1970s

A couple of weeks ago, I posted about a paper by Burkhauser et al., which argues that, contrary to popular belief, median income in the U.S. has not stagnated since the late 1970s. Interestingly, Greg Mankiw wrote about the paper just a few days later on his own blog.

I recently discovered that the CBO published a very similar finding in a 2011 report. Moreover, their analysis was based on a slightly different data-set. Specifically, whereas Burkhauser et al. looked at data from the CPS, they analysed data from the Statistics of Income, a nationally representative sample of tax returns collected by the IRS. (However, they reportedly supplemented their data with information from the CPS.)

The CBO's finding is shown in the chart below. Between 1979 and 2007, median household income in the U.S. rose by about 35%. (Note that Burkhauser et al. estimated an increase of 36.7%.) Mean household income rose by considerably more, which reflects the fact that richer Americans experienced higher income growth than poorer Americans. Indeed, consistent with previous work, the CBO also found that the distribution of household income became substantially more unequal over the time period in question.

Details of the CBO's definition of 'household income' can be found in the Notes and Definitions section at the beginning of the report. It would appear that they considered total post-tax, post-transfer income, adjusted for inflation and household size.

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